On April 3, 2009, the Court of Appeals for the Second Circuit vacated the District Court for the Northern District of New York’s dismissal of a trademark infringement suit against Google by Rescuecom, Corp., a computer repair firm.

At issue was Google’s AdWords program, which allows advertisers to purchase ads based on the appearance of another (often competing) company’s name in search terms, thus allowing the purchaser’s ads to appear in the search results alongside links to the searched-for company. Also in dispute was Google’s Keyword Suggestion Tool, which recommends potential keywords to advertisers for use in the AdWords program. The key issue was whether Google’s use of Rescuecom’s trademark in both programs constitutes a “use in commerce” under § 1127 of the Lanham Act.

Ars Technica explains that, having distinguished away precedent, the court determined that Google was appropriating trademarked terms. Google’s claim – that it was only using these terms internally as part of its ad-placing algorithm – was dismissed as disingenuous because its Keyword Suggestion Tool was specifically suggesting trademarks to potential ad buyers. The Wall Street Journal Law Blog notes that this may add some clarity to the jumbled law on the use of keywords.

Rescuecom alleged that it was trademark infringement for Google to allow Rescuecom competitors to purchase advertisements that would appear when a user conducted a search for the keyword “rescuecom,” and to recommend purchase of the term “rescuecom” to the company’s competitors. A federal judge dismissed the case in 2006, accepting Google’s argument that its use of Rescuecom’s trademark was internal and not an infringing “use in commerce.” The district court relied heavily for its finding on a 2005 decision, 1-800 Contacts v. WhenU. In that case, the Second Circuit ruled that an adware program that triggered ads from competing companies that appeared in a separate popup window when a user visited certain corporate websites did not constitute trademark infringement. The district court in this case found that 1-800 controlled and required dismissal of Rescuecom’s infringement claims. The dismissal was hailed as a victory for Google and other search engines, for which keyword advertising is a lucrative business.

Reversing the district court, the Second Circuit found that Google’s use was “in commerce” and remanded the case for further proceedings. Judge Pierre Leval, writing for the Second Circuit, found that the district court had misapplied circuit precedent. The Second Circuit distinguished 1-800 on the basis that in that case ads were triggered by a corporate URL rather than by a trademarked product or service name, and they appeared in a separate window. These features, the appeals court ruled, limited any confusion on the part of consumers, who might otherwise mistake the advertised brand for the trademarked one.

Google’s programs, by contrast, market the trademark itself to advertisers and display links to competitor websites on the same page, next to the searched-for brand. These differences, the court found, were significant enough that 1-800 did not require dismissal. The court determined that remanding for trial was appropriate to determine whether Google’s programs actually constitute trademark infringement by causing trademark confusion among those performing searches.

Trademark law is designed to protect consumers by preventing companies from selling their products under false pretenses. The core issue in this case is whether choosing a competitor’s trademark as an advertising keyword is likely to confuse consumers. It is unclear whether Google will win on the merits in the district court. The trial will undoubtedly be expensive, but, if Google were to prevail, it would be worth every dollar to the company to protect the revenue that online advertising generates.